Give to Your Alma Mater? (Part 1 of 3)

A donor with spare dollars and a sense of loyalty will probably give back to her alma mater. Maybe she’ll give big, maybe she’ll give small, but more than likely she will give something, because she wants to advance the goals of higher education that helped her get where she is today. According to Sherry Saavedra in the San Diego Union-Tribune, “It’s hard to find a university that hasn’t just initiated, wrapped up or isn’t in a record-setting fundraising campaign.” San Diego State University President Stephen Weber told Ms. Saavedra, “Since 1997, we’ve raised twice as much money as we did in the prior 100 years.”

But are those dollars actually advancing the goals of higher education, or are they advancing the goals of the Ivory Tower as a business enterprise? Assuming a donor gives, how can she make sure her dollars are used best?

In his October 2005 editorial for the New York Times, “Three Cheers (and a Big Question) for Yale,” celebrity writer, lawyer, and game show host Ben Stein voiced two major worries about giving back to Old Blue. First, it irks Stein that Yale’s investment managers, “are paid spectacularly as individuals for managing the money we gave for love of alma mater.” Manager David F. Swensen earns a six-figure salary to invest Yale’s money in private equity deals. Stein continues, “To think that they are players in the private-equity game because we alums donated money that we thought would go to scholarships—that’s a bit painful.” Are Stein’s dollars supporting higher education or the second home of an investment banker?

Second, Stein worries that he has no way of knowing who within the Yale juggernaut actually benefits from his gift. Compared to capital returns, alumni gifts and tuition dollars are “a drop in the bucket.” Stein muses that he might do better to donate to a smaller charity where he can be sure of tangible results: “If I give $15,000 [to the Friends of Animals Foundation], it saves many animals’ lives. Gifts of [this size] are virtually meaningless to Yale.”
James Dabney Miller, President of the Yale Law School Association, responded to Stein’s article the following week in a New York Times letter to the editor. Against Stein’s worry that an alumni gift is a “drop in the bucket” compared to capital returns, Miller explained that Yale Law actually has a $10 million shortfall between tuition/endowment earnings and “what it costs to open the Law School’s doors each September.” That $10 million, he says, must be gathered in “small bits and bites,” from alumni donations. Furthermore, “forty percent of Yale Law students get outright grants for tuition, paid for largely by small contributions from alumni.” So, alumni contributions do keep the juggernaut running, and they even contribute to financial aid. But that investment manager’s salary still has to come from somewhere.
The Yale Daily News responded with its own editorial on October 26, 2005: “While Swensen earns a high-six-figure salary, this is a paltry figure compared to his potential earnings on Wall Street. It is a fraction even of what his competition receives at Harvard.” And for that lesser salary, Swensen does a fantastic job, earning Yale’s investments an annual compound return of 20%. The Daily News continues, “These salaries do not come close to the vast returns these managers earn for the University.” Given how much Swensen earns for Yale, especially in light of his comparatively small paycheck and the higher paychecks of his peers, Stein could ease his qualms by considering that Swensen might in fact be underpaid.

This is the first of a three-part series by Chad Callaghan, Special Projects Coordinator for PhilanthroMedia, Inc.

PhilanthroMedia was established for discerning donors who want to increase the impact of their giving. A project of PhilanthroMedia, Inc, it provides syndicated daily content to 70 community foundations via RSS feed. Contact: Susan Herr (sh@philanthromedia.com)